California Passes Hourly Wage Law That Could Reform Abused Garment Manufacturing Sector
Fashion Nova made headlines in late 2019 when it was revealed that behind the fast fashion giant’s $ 25 denim and $ 35 velvet dresses was a network of ‘underpaid secret workers’ working in factories in Los Angeles to produce low-cost – yet completely Instagrammable – clothing and accessories that have been heavily endorsed by mega-stars like Cardi B and the Kardashians / Jenners. According to a December 2019 New York Times report, Fashion Nova’s clothing was “made in dozens of factories. [in Los Angeles] who owe hundreds of workers $ 3.8 million in arrears, ”some reportedly paid“ their sewers as little as $ 2.77 an hour ”depending on the number of garments created.
Public complaints against Fashion Nova – the Southern California-based brand that has conquered many millennia since its inception in 2006 – were hardly new. In fact, they mirrored those who have long plagued a large number of retail companies headquartered in the country, with Forever 21, among others, cited on more than one occasion by the Department’s Wage and Hour. Work (“DOL”). Division related to its manufacturing practices.
At the time of the striking New York Times briefing in 2019, Fashion Nova’s general counsel said that “any suggestion that Fashion Nova is responsible for underpaying anyone who works on our brand is categorically false.” Meanwhile, the company has claimed that its relationships with the roughly 700 suppliers responsible for making the trend-specific merchandise it sells are in “strict alignment with California law.”
Despite the DOL’s findings, which clearly suggested the existence of widespread wage and labor violations, it was not necessarily inaccurate for Fashion Nova to claim that it was operating under California state law. This assumed, of course, that the company could successfully position itself as a clothing and accessories retailer, as opposed to a manufacturer. This wasan important distinction because it meant the company – and others – could escape liability under AB 633, the “historic” anti-sweatshop legislation the state of California passed two decades ago. .
Adopted in 1999, AB 633 was hailed for its goal of preventing wage theft in the sweatshop-infested garment industry in California, home to the vast majority of clothing manufacturing in the United States. . A garment manufacturing company that does business with this person, the law seemed to be a promising way to root out abuses from the state’s vast garment manufacturing sector.
However, since the adoption of AB 633 (much to the chagrin of California-based fashion and clothing companies), its effectiveness has come under intense scrutiny. Significantly, because AB 633 focuses on people who have been damaged “by the failure of a garment. manufacturer, wholesaler, contractor or subcontractor pay a salary or benefits ”, the acts of a retailer, like Fashion Nova, were exempt from liability under a strict reading of the law.
As Hilda Solis, a member of the Los Angeles County Board of Supervisors (and former US Secretary of Labor), said at the time of the Fashion Nova report: “Some retailers and manufacturers have spent the past 20 years bending the law by creating layers of outsourcing, allowing them to avoid being classified as clothing manufacturers and to avoid liability [under AB 633], preventing tens of thousands of garment workers in Los Angeles County from recovering stolen wages.
According to the legislative findings, “the so-called ‘retailers’ contract with a network of manufacturers and contractors to produce their clothes and dictate the price structure that results in wage violations. This leads to fierce price competition, resulting in an average wage of $ 5.15 an hour for garment workers, well below the minimum wage, ”in accordance with a piece-rate system, as opposed to an hourly wage.
A key player in the push to shape garment manufacturing operations in a way that ensures companies with deep pockets can escape accountability, including adding layers of entrepreneurs (and possibly subcontractors as well) between them and the individuals who actually make the fashionable clothes? Forever 21.
As the Los Angeles Times reported in 2017, in the face of DOL action over alleged labor and wage violations within its supply chain, Forever 21 benefited from AB 633. In order to avoid legal consequences, “Forever 21 [characterized itself] as a retailer, not as a manufacturer ”, since all of the manufacturing of the clothing and accessories he sold was done outside his chain of employees. As such, the company’s attorney argued that it has “always [been] at least a walk from the factories in Los Angeles. And his claims worked: As of 2017, “sewing factories and wholesalers paid hundreds of thousands of dollars to settle these workers’ claims,” according to the Los Angeles Times. Meanwhile, “Forever 21 didn’t have to pay a dime.”
Other companies in a similar situation have followed suit and turned to the loopholes provided by AB 633 as a way to increase their margins and limit their exposure to liability.
Senate Bill 62
However, the trademark lifeline that exists in the loopholes of AB 633 has long been reduced, with the passage of a new bill, Senate Bill 62 or the Garment Worker Protection Act. , which California Governor Gavin Newsom promulgated on September 28. Stating that “the California clothing industry is plagued by violations of the minimum wage law, overtime laws and health and safety standards”, while having “the highest concentration of workers clothing industry in the country ”, SB 62 strives to ensure that workers in the clothing manufacturing space in California are paid a minimum hourly wage instead of a dictated wage. number of pieces created.
True to the intent of AB 633, the newly signed law states that “upstream liability” (i.e. liability to the commercial customer for manufactured garments, such as brands like Fashion Nova) must be “established, or the lingering problem of wage theft in the garment industry will continue.”
In addition to requiring that “each employer engaged in a clothing manufacturing activity” keep detailed and up-to-date records of “the names and addresses of all clothing workers directly employed by that person,” “of the hours worked daily by the employees. “, And” wages and wage rates paid each pay period “, among others, SB 62 requires that” employees engaged in the manufacture of clothing be paid at an hourly rate not lower than the applicable minimum wage “.
In terms of liability, SB 62 states that “a clothing manufacturer, entrepreneur or brand guarantor who contracts with another person for the performance of clothing manufacturing operations is jointly and severally liable with any manufacturer and contractor who performs these operations for the clothing manufacturer. or guarantor of the brand, for … the total amount of minimum, regular, supplementary and other unpaid bonuses, reimbursement of expenses and any other compensation, including interest, due to all employees who carried out the manufacturing operations for any violation of this code. ”
Simply put: The new law makes clothing brands and their holding companies jointly liable for the full amount of an employee’s unpaid wages and any other compensation alongside the clothing manufacturers’ contractors. And this throughout the supply chain, making a brand co-responsible for the entire manufacturing chain when it contracts with another entity to perform garment manufacturing operations.
Speaking about SB 62 on Tuesday, which was rebuffed by various industry groups as potentially capable of pushing garment manufacturing operations (and the jobs they provide) out of California, Gov. Newsom asserted that “the California holds businesses accountable and recognizes the dignity and humanity of our workers, who have helped build the world’s fifth-largest economy.
As for what brands should do in the immediate wake of signing the new law, which is expected to take effect Jan. 1, 2022, Seyfarth Shaw attorney Scott Mallery urges companies to “immediately start auditing their suppliers to ensure compliance with laws, regulations and ordinances on wages and hours of work. Going forward, he states that companies that select suppliers “might consider measures such as: (1) verifying Fair Labor Association membership, (2) third-party audit certifications, (3) filing surety bonds, (4) strengthening financial screening, and (5) reviewing any prior wage violations ”to avoid potential problems with the new law.
The SB 62 is the latest in a series of efforts in recent years that seem to indicate that a significant regulatory change could be made to the fashion industry in Western Europe and the United States, especially since ESG issues continue to gain traction with consumers and investors. .